John J. Tollefsen Civil Litigation Law Blog on Lawyers.com

Ledcor Industries (USA), Inc. v. Mutual of Enumclaw Ins. Co., --- P.3d ----, 2009 WL 1191783 (Wash.App. Div. 1 May 04, 2009) (NO. 59705-1-I)

Ledcor Industries (USA), Inc. alleged Mutual of Enumclaw (MOE) MOE failed to promptly accept Ledcor's tender of defense as an additional insured on its subcontractor's policy and failed to investigate or indemnify Ledcor resulting in liability for bad faith, breach of contract, and violations of the Consumer Protection Act (“CPA”). The trial court found bad faith and violations of the CPA, but awarded damages only for breach of contract. We affirm.

To successfully bring an action under the CPA, a private plaintiff must prove five elements: (1) unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; and (5) causation.

Violation of an insurance regulation is an unfair trade practice, which may result in CPA liability if the remaining elements of the five-part test are established. The trial court properly found that MOE's failure to accept tender for 14 months violated insurance regulations requiring it to acknowledge and act reasonably promptly upon communications with respect to claims. Bad faith constitutes a per se violation of the CPA.

However, Ledcor must establish that those violations caused an “injur[y] in [its] business or property,” without which there is no remedy under the CPA. Ledcor argued it was injured because it had to use $105,000 of its own funds toward settlement of the underlying litigation. But Ledcor failed to show how the $105,000 payment is in any way attributable to MOE's bad faith or delayed acceptance of tender. Ledcor also argued it was injured because its ongoing involvement in “the case” required it to pay expert witness fees and other expenses. But these claimed expenses were incurred in the instant lawsuit against MOE, not the underlying litigation. Those expenses are not cognizable injuries under the CPA.

Next, Ledcor argued it was injured because it had to retain and pay coverage counsel to resolve a dispute with Ledcor's own insurers. Again, Ledcor failed to explain why MOE's failure to defend claims arising from Zanetti's work has anything to do with Ledcor's dispute with its own insurers. Ledcor also argued it suffered injury because MOE's failure to defend had a negative impact on its insurance loss record, which caused “loss of peace of mind [and] uncertainty.” But Ledcor did not present evidence to establish that its insurance loss record was negatively impacted, or that the corporation encountered difficulty in procuring insurance, higher premiums, or loss of peace of mind.

Further, emotional damages are not compensable under the CPA. Ledcor relied on Dan Paulson (161 Wash.2d at 922) for the proposition that loss of peace of mind, uncertainty, and risk constitute injury under the CPA. In that case, which did not involve the CPA, Washington’s Supreme Court noted that the insurer's bad faith in subpoenaing an arbitrator “created uncertainty concerning potential prejudicing of the arbitrator and the effect of MOE's interference on the confirmability of the arbitration award.” This observation in part led the Court to reject MOE's contention that the insured's decision to proceed with the arbitration rebutted the presumption of harm due to its bad faith. The Court noted “‘that loss of control of the case is in itself  prejudicial to the insured.’ ” Loss of control of the case is not the same as loss of peace of mind, and here, Ledcor never lost control of its case. The appellate court held Dan Paulson does not support Ledcor.

Damages as minimal as a postage stamp or gasoline to drive to the attorney’s office have been found sufficient under the CPA in other cases. It is hard to imagine how plaintiff could not prove even the slightest of damage.